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Behind a Link
Of NYSE, Tokyo
Are Two Friends

Nishimuro and Thain
Are Planning to Meet
In Paris on Sunday

By

Andrew Morse

Updated Jan. 27, 2007 11:59 p.m. ET

TOKYO -- Taizo Nishimuro, president of the Tokyo Stock Exchange, faces a tough financial test: globalize one of the biggest stock markets in the world.

The 71-year-old executive -- who has been in the top job a little over a year -- came to the exchange just before it suffered one of its biggest embarrassments: On Jan. 18, 2006, a flurry of trades overloaded its archaic trading systems, forcing the world's second-largest exchange by market value of listed companies (behind the New York Stock Exchange) to temporarily shut down.

The incident triggered a crisis of confidence in Japan's financial infrastructure, and Mr. Nishimuro was forced to act quickly to upgrade creaky technology.

TSE's Taizo Nishimuro

At the same time, he is feeling pressure to build partnerships with other exchanges world-wide as the business of buying and selling stocks undergoes fundamental change. Already, rival markets are merging with one another and racing to develop costly, superfast computerized trading systems. The icon of the traditional market -- the trading floor packed with shouting brokers -- is receding.

Mr. Nishimuro has discussed alliances with potential partners as farflung as
London Stock Exchange Group
PLC, Korea Exchange, and
Chicago Mercantile Exchange Holdings Inc.,
operator of mammoth markets for commodities, currencies and complex financial products. But his biggest move could be announced as early as the next few days. Mr. Nishimuro is widely expected to sign a new cooperative alliance with New York Stock Exchange parent
NYSE Group Inc.

Such a pact would bring Mr. Nishimuro closer to an old friend, NYSE Chief Executive John Thain. The two met in 2001 during U.S.-Japan business talks, and eventually became friends. They speak often on the phone, and dine together when in the same city.

Mr. Nishimuro declined to comment on the details of any potential deals. "Friendship and business are different," he said.

On Friday, Mr. Thain said at a business conference in Davos, Switzerland, that he also expects an alliance with the Tokyo exchange. The two men are scheduled to meet in Paris on Sunday at a gathering of stock-exchange officials. Mr. Nishimuro then plans to come to New York on Tuesday.

Other markets are already pairing off. The NYSE and European exchange operator
Euronext
NV recently announced plans to merge, while
Nasdaq Stock Market Inc.
is trying to buy the London Stock Exchange. Chicago's two big futures exchanges have agreed to combine their operations, as have exchanges in Australia.

Right now, Tokyo's massive exchange makes it a natural first choice for global partners. But if Mr. Nishimuro moves too slowly, Tokyo risks getting left behind. Other regional exchanges, like Hong Kong and Singapore, are growing quickly and could become attractive partners.

'Severe' Competition

"Competition between exchanges will be much more severe" in the future, Mr. Nishimuro said in an interview recently. "Internationalization -- globalization -- is inevitable."

Analysts say the TSE is facing pressure to move swiftly. Cross-border alliances "are not much more than talk" if they lack concrete financial ties to back them up, said Neil Katkov, an analyst at Celent LLC, a financial-industry consultant.

Mr. Nishimuro has faced challenges before. After graduating from high school, he didn't get into his first-choice college, the prestigious Keio University. But rather than fall back to a second choice, he spent two years trying to get accepted, which he finally managed to do. After graduation, he joined Toshiba Corp., where he would spend the bulk of his business career.

At age 25 he started suffering severe leg pain that took six years to finally be diagnosed as a rare cyst on his spinal cord. Ultimately the cyst required an eight-hour operation to remove. Today he walks with a cane, yet does more than 200 push-ups every morning.

Mr. Nishimuro's efforts to overhaul the TSE highlight changes that are taking place throughout the Japanese economy. After a decade and a half of slow growth, many companies are throwing off a tradition of rigid management and becoming more dynamic.

Mr. Nishimuro also represents a break with tradition at the TSE, which formerly would have been headed by an ex-Finance Ministry official wiling away his retirement.

From Toshiba, Mr. Nishimuro brought with him experience shaking up bureaucracy. As that company's CEO from 1996 to 2000, he started letting each of Toshiba's many businesses operate more like individual companies to encourage nimbleness. Under his leadership, Toshiba's shares rose 40%.

But the job took its toll. Following a brief stay at home between business trips a number of years ago, one of his two daughters said to him, "Daddy, please visit again." After that, he began sending his children letters when traveling.

In June 2005, Mr. Nishimuro was appointed chairman of Tokyo's exchange. Traditionally at Japanese companies it's an honorary title. But he was pressed into daily duties six months later when crisis struck: The exchange's president, Takuo Tsurushima, resigned after the disastrous temporary shutdown.

Fixing the Computers

The exchange has earmarked more than a half a billion dollars for technology investment over the next three years and already doubled the number of orders it can process daily to 14 million.

Mr. Nishimuro has also moved to tear down the walls between management and employees, among other things, ending use of the executive elevators and dining room and is in the process of meeting with as many of the exchange's 740 employees as possible.

"If we give the employees confidence in management and confidence in what the TSE is going to do," Mr. Nishimuro says, "that gives us the power to make changes."